When I started researching the ABCs of the Pakistani economy, I had no idea about the ground realities of the country. As I kept digging, the lack of productivity growth across factors and sectors kept jumping out at me. We started talking about agriculture in Pakistan and how it has lagged behind for the last 25 years and yet I have seen no public outcry over this. Why are our policy makers not talking about productivity? Why has there been a lack of investment here?
Then recently, the Pakistan Institute of Development Economics started talking about it. You can read the details if you want but the main point I took away was the fact that except for in the 1980s, throughout Pakistan’s history, most real growth in for e.g., agriculture, came from labor inputs and not Total Factor Productivity. The 1980s was when participation of the private sector was encouraged along with great import liberalization. Since then, political and macroeconomic instability coupled with unstable policy environment in terms of rules, taxes and tariffs have limited productivity and GDP growth.
I was very unhappy. Macro Pakistani readers shouldn’t have to read the same excuses. It also mentions that the last time a Framework for Economic Growth was published by the Planning Commission was in 2011, which is wrong since they publish plans every 5 years. They’ve also published a Vision 2025, which we will talk about later, but let’s tie in all our previous discussions with one quote from it:
“The first implication of the high population is the downward pressure it puts on growth. This is mainly because investment funds have to be concentrated in meeting the needs of the growing population (education, health, housing, police and other infrastructure), rather than productivity growth.”Pakistan Vision 2025
Roti, Kapra aur Makaan
The Planning Commission basically says Pakistan’s problem is population growth. Because the government has been so busy providing education, health and housing, it has not been able to invest in productivity growth. Well, as we will discuss later, none of these factors have shown significant improvement either so this continues to make me unhappy.
We will talk about Makaan (housing) later but continuing with agriculture in Pakistan, which is a key input into Roti and Kapra, let’s talk about the structural issues with productivity.
Contribution to GDP of Agriculture in Pakistan (2014-20)
Since 2014, agriculture has increased by 8% in nominal terms while the GDP deflator has increased by 6%. The blue line that signifies prices, almost completely explains the growth in the bars over the years, which is something we discussed last time too.
Rural-Urban knowledge divide
If you are an urban city-dweller like me, you may be surprised to know that roughly 60% of agriculture in Pakistan consists of livestock and not crops. Or maybe that was just me. This contribution of livestock has actually increased since 2014 because the crops portion of agriculture has slow growth, so let’s explore that. Specifically, let’s focus on the ‘Important Crops’ which are wheat, maize, rice, sugarcane and cotton.
To understand productivity for crops, let’s think about what would make up this productivity. Productivity of a crop would increase if each farmer can grow more crops on the land they own. We can discuss how the total land available for cultivation is constrained due to soil organic matter, weather, irrigation and salinity later but let’s work with the land we have.
I remember from high school that Pakistan has a land area of 796,095 km2 or 79.6 million hectares (m ha). Out of this ~58 m ha is reported, 4.5 m ha is forest area and 24-25 m ha is not available for cultivation since it is made up of roads or housing. That leaves us with roughly 28 m ha of land that we could cultivate. However, 8 m ha is not used up and is called culturable waste, which basically means people have bought plots of farmland and are sitting on it. You are supposed to leave some land fallow to regain nutrients which makes up 5-6 m ha, leaving around 15 m ha cultivated land. Some land is sown twice so the total area we have to work with is consistently between 22-24 m ha.
We reap what we sow
The important crops mentioned above use up over 70% of the land and this has increased only slightly in the last two decades. However, what is grown on these lands has changed significantly.
Area allocated to Major Crops in Pakistan (2001-19)
Wheat, which is used to make Roti, takes up the lion’s share and has grown steadily. Cotton, which is used to make Kapra, has been deprioritized. We will explore later what the impact of this has been on exports and more generally, the overall economy, but for now, notice what has taken up its place instead. To accompany the Roti, our farmers have allocated more and more land to maize, rice and sugar. Inquiry reports will soon be included as part of a Pakistani’s staple diet, and Macro Pakistani will also deep dive into them later so let’s park this for now.
Sugar, rice, not everything nice
As you would have probably guessed, since agricultural productivity has been stagnant, Pakistan is not topping the charts for yield performance across these crops.
Crop Yield Comparison of Pakistan vs. Global benchmarks
If you compare Pakistan’s yields to global benchmarks, you will realize that we are consistently less than 50% as productive as farmers in other countries are. Now, the obvious excuses are Pakistan is not a developed country like the US and France, which have larger farms that can accommodate mechanization. Countries in Latin America like Guatemala and Brazil are blessed with rain and rely less on irrigation. China has a higher rate of corporate farming… the list will go on.
Why has agriculture in Pakistan not adopted more corporate farming practices? Why have we failed at upgrading our agriculture technology? Why are we growing sugarcane if we don’t have enough rain? Why does the government continue to subsidize unproductive sectors of the economy?
It is true that Pakistan has smaller land holdings than developed countries do but take the case of China to understand why that is not a good enough excuse.
Number of farms by size comparison of Pakistan vs. Global benchmarks
According to the Census of Agriculture in 2010, Pakistan on average, had a farm size of 2.6 ha. Small farmers are those that hold 12-16 ha of land, varying by province. If you see a lot of green, know that the country has a lot of small farms and if you see light blue, you know the country has large farm holdings. Let’s not compare Pakistan to countries like the US which have an average farm holding size of 178 ha but can we compare to China where 93% of farms are below 1 ha?
China-Pakistan Everything Corridor
If you remember from last time, China had half the agricultural productivity of Pakistan in 1995 and that has grown fourfold since. What changed is that the government passed regulation in the mid 1990s that allowed consolidation of highly fragmented farm operations into larger-scale units which was one of the most important pathways of productivity growth in China. It also helped alleviate inefficient use of resources such as chemicals and allowed for provision of credit and crop insurance programs.
China also realized early that with its limited agricultural land endowment and other natural resources, it would never have a comparative advantage in grain (e.g. rice, wheat, maize) production. Hence, it focused on agricultural products that are intensive in capital and knowledge. Though there are other countries, such as the Netherlands, which rely heavily on research in agriculture that Pakistan can learn from, there are many low hanging fruits in a partnership with China.
Earlier, Macro Pakistani articles have talked about how the country needs FDI that is less market-seeking and more efficiency-seeking. Agriculture in Pakistan is one such sector where a transfer of international capital and knowledge would be greatly beneficial with far reaching consequences. Early signs look positive with the government currently working on seed technology transfer with China.
Rural-Urban skills divide
China accompanied this modernization in agriculture with land reforms and rapid industrialization, both of which Pakistan also needs. If land rights are not secure enough, small farmers will not have the confidence required to rent land to corporates at a large scale. The digitization of land records that has started in Punjab needs to be implemented properly across the country.
At the same time, as productivity increases in agriculture and less labor is required, workers (especially the younger generation) will move to urban areas for better job opportunities. A wide scale industrialization program with necessary vocational skills training will be required in tandem to absorb the migrating workforce. Pakistan’s industrial sector, particularly manufacturing, has also been facing structural issues which we will discuss next time.
The problem of Pakistan’s agri space not moving towards mechanization and advancement is majorly due to the lopsided land holding structure which I believe forms the basis of all the problems. A stat from Agri census of Pakistan 2010 would have aptly captured the dilemma. The smallest farmers/farms make up about 89% of the total farmers/farms but only own 55% of the land holding. The top 11% of farmers hold 45%. This inherently inequitable structure is the biggest hindrance as large/big zamindaars and landowners are already making enough without any competition, deterring them to make any technological change (although there a few progessive farmers who are trying to move towards mechanization). The need of the hour is to support small farmers who can barely survive the brunt of middlemen and seasonal fluctuations. In China, the govt supported them with easy financing which helped them to modernize their infrastructure and create a comeptitive environment which ushered an era productivity boom.
However, the govt. support needs to be directed towards small farmers to make this landscape a bit more competitive. But any across the board subsidy programs through fertiliser manufacturers or tractor companies is bound to land in the pockets of large farm owners. You have correctly pointed out that there is a need to digitize land records (Sindh lacks it and is the biggest hindrance to a national smart subsidy program), so smart subsidy programs and agri financing can be made available to small farmers.
Thank you Waqas for your comment. Yes the lopsided land holdings in Pakistan are indeed a major issue and is further exacerbated by the power the patwari holds in these areas. My argument for digitizing land records is basically to allow small farmers to feel ‘safe’ in owning the land but renting it out to larger scale farmers (which is what China also did). Providing financing to small farmers (44% of them own less than 1 ha land in size) is difficult for banks without guarantees. Not sure if you had a chance to read https://macropakistani.com/2020/07/financing-in-pakistan/. I talk about SMEs but State Bank includes agriculture in their guarantee program (PKR 2 M for 3 years). However, the take off is limited because of marketing.